Under which of the following situations will courts usually find pricing legal?
A) When the prices are above average variable cost but below average total cost and the company has excess capacity.
B) When the prices are above average variable cost but below average total cost and the company does not have excess capacity.
C) When the prices are below average variable cost and below average total cost and the company does not have excess capacity.
D) Only when prices are above both average variable cost and average total cost.

Question

Quizplus · Accepted Answer

Courts will usually find pricing legal when the prices are above average variable cost but below average total cost and the company has excess capacity, as this indicates that the company is not engaging in predatory pricing to drive competitors out of the market. Pricing below average variable cost and/or average total cost may be seen as an attempt to drive competitors out of the market by creating unrealistic prices that make it impossible for other businesses to compete. Pricing above both average variable cost and average total cost may indicate that a company is engaging in price-fixing or other anti-competitive behavior.

Under Which of the Following Situations Will Courts Usually Find